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Economic Insights

Ludwig von Mises
This Economic Insights features one of
the free economy’s most famous intellectual
warriors, Ludwig von Mises. Working from
within the Austrian paradigm, in 1912 Mises
became the first to apply marginal utility theory
to money itself, in The Theory of Money and
Credit, his first major work. He triggered one of
economics’ most contentious and enlightening
debates a few years later with his claim that central planning, regardless of its undesirability on
other grounds, was impossible to implement successfully. Holding to this claim and being an
uncompromising proponent of classical liberalism impaired Mises’ academic reputation for the
remainder of his life. Yet he never stopped working, and he produced some of the century’s most
controversial and brilliant books, among them
Theory and History, Socialism, Omnipotent
Government, Bureaucracy, Planning for Freedom, Liberalism, Epistemological Problems of
Economics, Planned Chaos and his greatest
achievement, Human Action.
We often hear the resigned cry that one
person can’t change the world. But many individuals have done so, and Ludwig von Mises’ life
stands as one more example of what a determined, committed individual can do to change
history’s course.
— Bob McTeer
Federal Reserve Bank of Dallas

Ludwig Elder von Mises’ life was
testament to the saying that one man
with courage makes a majority.
Mises was born in 1881 in
Lemberg, Austria-Hungary. He enrolled
in the University of Vienna in 1900 and
received his doctorate in law and economics in 1906. A student of Eugen von
Böhm-Bawerk—himself an admirer of
Carl Menger, father of the Austrian school
of economics—Mises became one of
the university’s most prominent figures.
After graduating, Mises worked for the
Vienna Chamber of Commerce as an
economist and economic advisor to the
Austrian government.
In 1926 he founded the first entity
dedicated solely to the study of macroeconomic fluctuations, the Austrian Institute for Trade Cycle Research.1 While
pursuing this interest, he taught an economic theory course at the University
of Vienna without pay and ran a semimonthly seminar at the chamber offices
that drew some of the most notable
names in economics and the social sciences, including F. A. Hayek, Gottfried
Haberler, Wilhelm Röpke, Alfred Shutz,
Erich Voegelin, Paul Rosenstein-Rodan,

Fritz Machlup, Oskar Morgenstern and
Lionel Robbins.
Between his departure from Vienna
in 1934 and his decision to go to America
after the Germans breached the Maginot
Line in June 1940, Mises taught in
Geneva at the Graduate Institute of International Studies. He flourished in the
Swiss city and was very reluctant to
leave, especially as his English was much
weaker than his French. But the fall of
France, the antipathy of the Nazi government—which blacklisted him—and
his wife Margit’s pleadings made his
departure a near certainty. Since the
early 1930s, Mises had warned those
close to him of impending political disaster in Austria and urged them to emigrate. American economist Benjamin
Anderson, then with Chase Manhattan
Bank, supported the couple’s bid for
nonquota visas, which allowed them
immediate entry into the United States,
provided they could get there. It
proved to be a difficult, harrowing journey, but when it ended, Mises at last
stood on American soil.2
The early years in his new country
were not easy ones for Mises. He had

The Problem of Socialist Economic Calculation
The problem of economic calculation is the fundamental problem of Socialism. That for decades
people could write and talk about Socialism without touching this problem only shows how devastating were the effects of the Marxian prohibition on scientific scrutiny of the nature and working of a
socialist economy.
To prove that economic calculation would be impossible in the socialist community is to prove
also that Socialism is impracticable. Everything brought forward in favour of Socialism during the last
hundred years, in thousands of writings and speeches, all the blood which has been spilt by the supporters of Socialism, cannot make Socialism workable. The masses may long for it ever so ardently,
innumerable revolutions and wars may be fought for it, still it will never be realized. Every attempt to
carry it out will lead to syndicalism or, by some other route, to chaos, which will quickly dissolve the
society, based upon the division of labour, into tiny autarkous groups.
The discovery of this fact is clearly most inconvenient for the socialist parties, and socialists of
all kinds have poured out attempts to refute my arguments and to invent a system of economic calculation for Socialism. They have not been successful.■
— Socialism, 135.

Praxeology Versus
Positivistic Method in
Social Science
…Behaviorism and positivism want to apply
the methods of the empirical natural sciences
to the reality of human action. They interpret it
as a response to stimuli. But these stimuli
themselves are not open to description by the
methods of the natural sciences. Every
attempt to describe them must refer to the
meaning which acting men attach to them. We
may call the offering of a commodity for sale a
“stimulus.” But what is essential in such an
offer and distinguishes it from other offers
cannot be described without entering into the
meaning which the acting parties attribute to
the situation. No dialectical artifice can spirit
away the fact that man is driven by the aim to
attain certain ends. It is this purposeful behavior— viz., action —that is the subject matter
of our science. We cannot approach our subject if we disregard the meaning which acting
man attaches to the situation, i.e., the given
state of affairs, and to his own behavior with
regard to this situation.
It is not appropriate for the physicist to
search for final causes because there is no
indication that events which are the subject
matter of physics are to be interpreted as the
outcome of actions of a being, aiming at ends
in a human way. Nor is it appropriate for the
praxeologist to disregard the operation of the
acting being’s volition and intention; they are
undoubtedly given facts. If he were to disregard it, he would cease to study human action.
Very often— but not always —the events concerned can be investigated both from the point
of view of praxeology and from the natural sciences. But he who deals with the discharging
of a firearm from the physical and chemical
point of view is not a praxeologist. He neglects
the very problems which the science of purposeful human behavior aims to clarify….
The postulates of positivism and kindred
schools of metaphysics are therefore illusory.
It is impossible to reform the sciences of
human action according to the pattern of
physics and the other natural sciences. There
is no means to establish an a posteriori theory
of human conduct and social events. History
can neither prove nor disprove any general
statement in the manner in which the natural
sciences accept or reject a hypothesis on the
ground of laboratory experiments.■
— Human Action, 26 –7, 31.

abandoned his research notes and
library, as well as a well-paid position
in Geneva, for uncertain circumstances
in the New York of 1940. Although Mises
had a temporary appointment as lecturer
and research associate professor at the
University of California–Berkeley, he remained in New York because he thought
it the country’s cultural center. As Mises
never did hold a full-time teaching position at any American university, this decision had large consequences for his
career and, therefore, for his prestige in
U.S. academic circles. It also meant years
of frugality and dissaving for him and
his wife.
The Rockefeller Foundation, through
the National Bureau of Economic Research, provided some support in the
form of a once-renewed, two-year research grant that ended in early 1945,
just as Mises began his long association
with the Graduate School of Administration at New York University. He was
hired to teach a one-semester course
but remained as a visiting professor
until his retirement in 1969. In 1948 he
began his famous Thursday evening
seminar. He also formed a relationship
with the Foundation for Economic Education, writing for its publication The
Freeman and conducting seminars.
Another fortuitous relationship for
Mises was the friendship of Henry Hazlitt.3
Hazlitt saw to it that Mises’ works were
reviewed in major national media and
promoted him among those in a position to help support Mises’ research and
writing over the next three decades.
During this time —between 1944
and 1960 —Mises wrote prolifically, finishing several books, among them Omnipotent Government, Bureaucracy, Theory
and History and his masterpiece, Human
Action: A Treatise on Economics.4 Although often difficult for those without
formal training in economics to fully comprehend, these books have been in print
continuously and sold well. Mises’
influence has grown with every person
who has discovered and read him.
His NYU seminars were the other
main avenue by which Mises helped
shape political and economic events.

The Origins of
Socialist Ideology
The truth is that the concept of socialism
did not originate from the “proletarian mind.”
No proletarian or son of a proletarian contributed any substantial idea to the socialist
ideology. The intellectual fathers of socialism
were members of the intelligentsia, scions of
the “bourgeoisie.” Marx himself was the son
of a well-to-do lawyer. He attended a German
Gymnasium, the school all Marxians and other
socialists denounce as the main offshoot of
the bourgeois system of education, and his
family supported him through all the years of
his studies; he did not work his way through
the university. He married the daughter of a
member of the German nobility; his brother-inlaw was Prussian minister of the interior and
as such head of the Prussian police….
Friedrich Engels was the son of a wealthy
The workers were never enthusiastic
about socialism. They supported the union
movement whose striving after higher wages
Marx despised as useless. They asked for all
those measures of government interference
with business which Marx branded pettybourgeois nonsense. They opposed technological improvement, in earlier days by
destroying new machines, later by union pressure and compulsion in favor of feather-bedding. Syndicalism — appropriation of the
enterprises by the workers employed in
them—is a program that the workers developed spontaneously. But socialism was
brought to the masses by intellectuals of bourgeois background. Dining and wining together
in the luxurious London homes and country
seats of late Victorian “society,” ladies and
gentlemen in fashionable evening clothes concocted schemes for converting the British proletarians to the socialist creed.■
— Theory and History, 121 –2.

Many of the influential and talented
individuals who gathered for the weekly
seminars became university professors
themselves, further spreading the core
ideas of Austrian economic theory.
Throughout this period, however,
Mises remained an outcast professionally, and unlike colleagues such as
Hayek, he never secured a conventional
full-time teaching position despite his

reputation, knowledge and publication
record.5 This was due, said his critics, to
his “intransigence,” a word used as a
synonym for Mises’ inability to compromise with the socialist, proplanning
policies that dominated domestic economic agendas in most nations after
World War II.6
And there was, for prospective employers and his political opponents, even
more. In 1920 Mises wrote the article that
triggered the so-called socialist calculation debate, in which he (and later, other
Austrian theorists — notably Hayek)
claimed socialism was doomed because
of its inability to rationally allocate resources. This made him well-known not
only as an opponent of planning in all its
rhetorical forms but also as the person
who first questioned its very possibility.7
This was a large ideological load to
carry between 1945 and 1970, a period
characterized by a growing enthusiasm
for government intervention and central
economic fine-tuning. Mises and the small
group around him stood mostly alone in
their advocacy of laissez-faire and disavowal of government attempts to manipulate free market outcomes, whether for
purely economic reasons or to meet the
growing demand for “social justice.” But
Mises never wavered in his conviction
that only free markets could help people achieve prosperity and dignity.
The disintegration of the Soviet
Union, and the sea change toward global
capitalism that caused it, bore out Mises’
prediction that socialism could not work.
He adhered to that belief in the face of
claims by most economists that he was
wrong, that he had lost the intellectual
debate on this point to Oscar Lange
and that not only could socialism work
but it might even outperform marketbased economies.8 It is unfortunate that
Nobel awards in economics can only
be given to the living, for Mises’ analysis of the inevitable, long-run failing of
collectivist schemes stands empirically
verified as one of the greatest achievements in economic theory.
Mises died in October 1973 in New
York City. His legacy—in the form of
voluminous writing on many important

subjects, rich in theoretical innovation
and wrinkles from his fertile mind—continues to attract new adherents, both to
Austrian economics and to the profession of economics more generally. An institute at Auburn University that bears
his name continues to spread his ideas
and make many of his writings publicly
available. In 1974 his favorite student—
F. A. Hayek—won a joint Nobel Prize
in economics for monetary theory work
clearly based on Mises’ insights in The
Theory of Money and Credit and his formation of Austrian business cycle theory.
Mises has been dead for three
decades, but his intellectual influence
still surrounds us and always will.■
— Robert L. Formaini
Senior Economist



Mises (1969a) calls the entity he founded the
Austrian Institute for Trade Cycle Research.
But he later (Mises 1978, 76) calls it the
Austrian Institute for Business Cycle Research,
as does Rothbard (1987), and both use the
1926 founding date. Margit von Mises (1976)
supplies yet another name and a different
founding date — Austrian Institute for Business
Research and 1927.
Margit von Mises (1976, chap. 4).
Readers may wish to consult Formaini (vol. 6).
Until a badly handled reprinting of Human
Action in 1963, Mises had an ongoing relationship with Yale University Press, which
brought out Omnipotent Government and
Bureaucracy in 1944 and reprinted Socialism
(1951), The Theory of Money and Credit
(1953) and Theory and History (1957).

Foreseeing California’s Energy Crisis in 1927
…To be sure, it is conceded [by prosocialist intellectuals] that socialism, the communal ownership of
the means of production, is altogether, or at least for the present, impracticable. But, on the other
hand, it is asserted that unhampered private ownership of the means of production is also an evil.
Thus people want to create a third way, a form of society standing midway between private ownership…and communal ownership…. Private property will be permitted to exist, but the ways in which
the means of production are employed by the entrepreneurs, capitalists, and landowners will be regulated, guided, and controlled by authoritarian decrees and prohibitions....
…The crucial acts of intervention with which we have to deal aim at fixing the prices of goods and
services at a height different from what the unhampered market would have determined….
…If a lower [than free market] price is decreed by government, the proceeds will fall short of the
costs. Merchants and manufacturers will, therefore, unless the shortage of the goods involved would
cause them to deteriorate rapidly in value, withhold their merchandise from the market in the hope of
more favorable times, perhaps in the expectation that the government order will soon be rescinded. If
the authorities do not want the goods concerned to disappear altogether from the market as a result
of their interference, they cannot limit themselves to fixing the price; they must at the same time also
decree that all stocks on hand be sold at the prescribed price.
But even this does not suffice. At the price determined on the unhampered market, demand and
supply would have coincided. Now, because the price was fixed lower by government decree, the
demand has increased while the supply has remained unchanged. The stocks on hand are not sufficient to satisfy fully all who are prepared to pay the prescribed price. A part of the demand will remain
unsatisfied….If the government wishes to avoid this consequence of its intervention, which runs
counter to its intentions, it must add rationing to price control and compulsory sale: a governmental
regulation must determine how much of a commodity may be supplied to each individual applicant at
the prescribed price.
But once the supplies already on hand at the moment of the government’s intervention are
exhausted, an incomparably more difficult problem arises. Since production is no longer profitable if
the goods are to be sold at the price fixed by the government, it will be reduced or entirely suspended.
If the government wishes to have production continue, it must compel the manufacturers to produce,
and, to this end, it must also fix the prices of raw materials and half-finished goods and the wages of
If the Government will not set this right again by desisting, from its interference, i.e., by rescinding the price controls, then it must follow up the first step with others….Either capitalism or socialism: there exists no middle way.■
— Liberalism, chapter 2, section 5.



Formaini (vol. 4).
Rueff (1956). When he wasn’t being
labeled “intransigent” for his political support
for free trade, Mises was called other things
for his belief in a priori reasoning during the
heyday of the positivist – empiricist trend in
economics. For one example, see Blaug
(1980, 93).
Mises (1975).
For an example of a prosocialist theoretical
refutation of Mises’ antiplanning claim, see
Schumpeter (1976, 172 – 73).

Blaug, Mark (1980), The Methodology of
Economics, or, How Economists Explain
(Cambridge: Cambridge University Press).
Formaini, Robert L. (vol. 4), “Hayek: Social
Theorist of the Century,” Federal Reserve Bank
of Dallas Economic Insights, No. 1.
——— (vol. 6), “Henry Hazlitt: Journalist
Advocate of Free Enterprise,” Federal Reserve
Bank of Dallas Economic Insights, No. 1.
Mises, Ludwig von (1963), Human Action: A
Treatise on Economics, 3rd rev. ed. (Chicago:
Henry Regnery).

The Importance of Clear Terminology for Clear Thinking
Government is an apparatus of compulsion and coercion. It has the power to obtain obedience
by force. The political sovereign, be it an autocrat or the people as represented by its mandataries, has
power to crush rebellions as long as his ideological might subsists.
The position which entrepreneurs and capitalists occupy in the market economy is of a different
character. A “chocolate king” has no power over the consumers, his patrons. He does not rule the consumers, he serves them.... He loses his “kingdom” if the consumers prefer to spend their pennies elsewhere. Nor does he “rule” his workers. He hires their services by paying them precisely that amount
which the consumers are ready to restore to him in buying the product. Still less do the capitalists and
entrepreneurs exercise political control. The civilized nations of Europe and America were long controlled by governments which did not considerably hinder the operation of the market economy. Today
these countries too are dominated by parties which are hostile to capitalism and believe that every
harm inflicted upon capitalists and entrepreneurs is extremely beneficial to the people.
In an unhampered market economy the capitalists and entrepreneurs cannot expect an advantage from bribing officeholders and politicians. On the other hand, the officeholders and politicians are
not in a position to blackmail businessmen and to extort graft from them. In an interventionist country powerful pressure groups are intent upon securing for their members privileges at the expense of
weaker groups and individuals. Then the businessmen may deem it expedient to protect themselves
against discriminatory acts on the part of the executive officers and the legislature by bribery; once
used to such methods, they may try to employ them in order to secure privileges for themselves….
[T]he fact that businessmen bribe politicians and officeholders and are blackmailed by such people
does not indicate that they are supreme and rule the countries. It is those ruled — and not the rulers —
who bribe and are paying tribute…. [The businessmen] venture to preserve the free enterprise system and to defend themselves against discrimination by legitimate democratic methods. They form
trade associations and try to influence public opinion. The results of these endeavors have been rather
poor…. The best that they have been able to achieve is to delay for a while some especially obnoxious measures.
Demagogues misrepresent this state of affairs in the crassest way. They tell us that these associations of bankers and manufacturers are the true rulers of their countries and that the whole apparatus of what they call “plutodemocratic” government is dominated by them. A simple enumeration of
the laws passed in the last decades by any country’s legislature is enough to explode such legends.■

——— (1969a), The Historical Setting of the
Austrian School of Economics (New Rochelle,
N.Y.: Arlington House).
——— (1969b), Socialism: An Economic and
Sociological Analysis (London: Jonathan
——— (1969c), Theory and History: An
Interpretation of Social and Economic Evolution
(New Rochelle, N.Y.: Arlington House).
——— (1975), “Economic Calculation in the
Socialist Commonwealth,” in Collectivist
Economic Planning: Critical Studies on the
Possibilities of Socialism, ed. F. A. Hayek
(Clifton, N.J.: Augustus Kelley), 87 – 132.
——— (1978), Notes and Recollections (Spring
Mills, Pa.: Libertarian Press).
——— (1985), Liberalism (Irvington-onHudson, N.Y.: Foundation for Economic
Education). Online at

— Human Action, 272 – 73.

Mises, Margit von (1976), My Years with
Ludwig von Mises (New Rochelle, N.Y.:
Arlington House).

Suggested Reading
Several Mises books can be downloaded from

Rothbard, Murray (1987), “Mises, Ludwig
Elder von (1881 –1973),” in The New Palgrave:
A Dictionary of Economics, vol. 3, ed. John
Eatwell, Murray Milgate and Peter Newman
(New York: Stockton Press), 479 – 80.
Rueff, Jacques (1956), “The Intransigence of
Ludwig von Mises,” in On Freedom and Free
Enterprise, ed. Mary Sennholz (Princeton, N.J.:
D. van Nostrand), 13 – 16.
Schumpeter, Joseph A. (1976), Capitalism,
Socialism, and Democracy (New York: Harper

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Federal Reserve Bank of Dallas. The views
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